From boom to balanced: 2022 set to ride a smoother property wave

After a bumper year across the Australian property market – from the city to the regions – experts are predicting slower price growth ahead. However, with limited supply and low interest rates for the foreseeable future, real estate will still be a hotly sought-after commodity in 2022.

National dwelling values were up 0.6 per cent in February, rounding out a 2.7 per cent increase for the quarter according to CoreLogic’s monthly Hedonic Home Value Index.i February marks the slowest growth since October 2020, with Sydney recording its first decline in 18-months.

Coast and county price growth continued to outpace that of the cities with the combined capitals reporting a modest rise of 1.8 per cent while the combined regions jumped 5.7 per cent in the three months to February 28.

A new beginning

While no commentator can guarantee how property will perform in 2022, one thing is certain according to REA Group senior economist Eleanor Creagh – 2021 finished very differently to how it started.

REA analysts expect new listings to remain elevated during the start of 2022, as would-be sellers respond to strong price growth. February saw the busiest auction week since Core Logic records started in 2008.ii And with more homes on the market, there should be a better balance of supply and demand to calm down skyrocketing prices.

In addition to this, the Australian Prudential Regulation Authority’s changes which took effect late last year are also having a subtle impact, reducing the borrowing capacity of new buyers.

City snapshots

Melbourne

During the three months to February 28, the Victorian capital has seen a 0.2 per cent rise in the median dwelling value to $799,756. Melbourne’s rents increased by 4.6 per cent (houses) and 5.5 per cent (units) annually while the gross rental yield for the city was 2.8 per cent.

Sydney

Over the quarter the Harbour City experienced a median dwelling rise of 0.8 per cent to $1.116 million. The annual change in rents for Sydney was up 8.7 per cent (houses) and 8 per cent (units). Sydney’s gross rental yield was sitting at 2.4 per cent.

Brisbane

Home values in Queensland’s capital had a significant jump of 8.3 per cent during the quarter to reach $706,594. Over the year, rents rose by 11.3 per cent (houses) and 6.5 per cent (units) and Brisbane’s gross rental yield was 3.6 per cent by February’s end.

Canberra

The nation’s capital saw a surge in the median dwelling value of 3.7 per cent to $906,529. In a 12-month period, rent in Canberra jumped 9.7 per cent (houses) and 6.8 per cent (units) while the gross rental yield was 3.8 per cent.

Perth

By the end of February, the West Australian capital had a 1.2 per cent increase to dwelling values taking the median to $531,243. Perth’s rents were up 7.8 per cent (houses) and 6.7 per cent (units) over the year and its gross rental yield was 4.4 per cent.

Units back in demand

After a rocky ride for city units in 2020 and 2021, apartments could be back in favour for 2022. “The reopening of international borders and subsequent return of skilled migrant workers and international students is likely to see increased demand for inner-city rentals,” Ms Creagh said.

With investor activity picking up in the latter half of 2021, there is increased demand for units. REA Group reported a two-year high in investor enquiry to real estate agents via their realestate.com.au portal.

APRA’s increase to the serviceability buffer – coupled with the fact investor loans typically have higher interest rates – means affordability could impact investors more than owner occupiers thus pointing them towards units.

The future of interest rates

Despite the RBA Governor Philip Lowe repeatedly maintaining throughout the pandemic, that the official cash rate wouldn’t move until late 2023 – at the earliest – there is now speculation a rise could come much sooner.

If you would like to discuss your borrowing power or refinancing for 2022, get in touch with your mortgage broker today.

i CoreLogic’s Regional Market Update: https://www.corelogic.com.au/news

Note: all figures in the city snapshots are sourced from: CoreLogic’s national Home Value Index (March 2022)

ii https://www.corelogic.com.au/news/busiest-february-auction-week-corelogic-records-commenced-2008